A comparison of revenue growth at recent-IPO and established firms: The influence of SG&A, R&D and COGS

A dynamic view of the resource based theory (RBT) examines how a firm builds its resources over time, considering variations in resources' growth rates while the firm attempts to grow. Accordingly, we consider the elasticity of accumulated resources to assess conditions where these resources might serve as substitutes for rather than complements to COGS during periods of growth. We specify a production function that links aggregate resource allocation among SG&A, R&D and COGS expenses to a firm's revenue. This function yields a set of hypotheses on the elasticity of SG&A and R&D, and the productivity of COGS, while controlling for the revenue growth rate. We test these hypotheses on a dataset of 64 randomly selected firms that recently underwent an IPO, and a comparable set of 64 established public firms from four high-technology sectors. Results show that the accumulated stocks of resources can serve as substitutes for rather than complements to COGS, and the manner in which recent-IPO firms allocate and use resources differs from their established counterparts. We discuss the implications of associated elasticity and productivity results.     

A reappraisal of strategic trade policies with the endogenous mode of competition under vertical structures

This paper examines the endogenous choice of competition mode with strategic export policies in vertically related markets when each upstream firm located in each country determines the terms of the two-part tariff contract by maximizing generalized Nash bargaining. We show that (i) choosing Cournot (Bertrand) competition is the dominant strategy for both downstream firms when goods are substitutes (complements), which leads Pareto superior regardless of the nature of goods under the optimal trade policies; (ii) irrespective of rival’s competition mode, the optimal trade policy is an export subsidy under Cournot competition and an export tax under Bertrand competition; and (iii) trade liberalization may give rise to changes of competition mode and increase of social welfare.     

Strategic alliances by financial services firms

We examine a sample of strategic alliances made by financial services firms during 1986 to 2003. The market reacts positively to the announcements of alliances and seems to incorporate the information about the value of alliances at the time of alliance announcements. We find no evidence of abnormal stock performance after announcements. Our results also suggest that strategic alliances usually are used as a final form of cooperation rather than as a first step towards closer cooperation between firms. For instance, only about 5% of alliances are followed with joint ventures or mergers of partner firms. Nevertheless, strategic alliance firms are more likely to form joint ventures or merge than randomly selected and matched firms. Furthermore, the market reacts more favorably to the alliance announcements by firms that are subsequently acquired by the alliance partners.     

Determinants of corporate hedging and derivatives: A revisit

Although the primary purpose of hedging is to reduce earnings volatility, corporate hedging may also increase firm value. Using publicly-available data, we found that hedging reduces the probability of financial distress, reduces the agency costs of debt, and reduces some agency costs of equity. However, we found no support for the hypothesis that hedging increases firm value by reducing expected tax liability. In addition, we suggest that corporate ownership structure may affect the desirability of hedging. We also found that large firms have a stronger tendency to hedge, firms with a larger percentage of value derived from growth opportunities are more likely to hedge, and convertible debt serves as a substitute for corporate hedging. With a dummy variable for multinational corporations as a proxy for operational hedging, we found that operational hedging and derivative hedging are complements rather than substitutes.     

跨国战略联盟:对现代企业竞争关系一种新的诠释

跨国战略联盟是跨国经营企业为了实现战略目标所建立的合作关系,是企业可以扩大经营范围而不扩大企业规模的一种经营方法,作为介于市场和企业组织间的“混成组织”,跨国战略联盟体现了一种新型的“柔性”竞争,是在竞争的基础上加入了合作的内涵,是一种合作性的竞争或竞争性的合作,它对现代企业的竞争关系进行了新的诠释。     

Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?

We analyze whether linking international cooperation in trade policy to environmental policy (or other issues with nonpecuniary externalities) promotes more cooperation in both policies, or whether cooperation in one is strengthened at the expense of the other. In the context of self-enforcing agreements, we show that if the policies are independent in the government's objective function, then linkage promotes cooperation in one policy at the expense of the policy that is easier to enforce under no-linkage. However, if the linked policies are not independent and if these policies are strategic complements, then linkage can sustain more cooperation in both issues than no-linkage. The policies are strategic complements only if (i) the production externality has cross-border effects; (ii) the weight on the externality cost is high; (iii) import competing lobbies are not “powerful”.     

Strategic trade policies with first-mover and second-mover advantages in a vertical structure

With strategic trade policies, we consider first- and second-mover advantages in a vertical structure given the two-part tariff contract (composed of the input price and the fixed fee) of an upstream firm, where a home and a foreign final-good firms export to a third-country market. We find that the upstream firms’ and governments’ preference orderings over sequential versus simultaneous play and over free trade versus a regime of subsidies contrast with early results in the strategic trade policy. Thus, the endogenous market structure is that (i) the potential leader chooses the Leader role with quantity strategies, and the equilibrium trade regime is unilateral subsidy regardless of the nature of goods; (ii) with price strategies, the potential leader chooses the simultaneous timing, and the equilibrium trade regime is bilateral taxes (free trade) when goods are substitutes (complements).     

One more only if it is one of us. The number of partners and the stock market reaction to domestic and international alliance formation in EU telecom firms

In this paper, we analyze the interaction between two dimensions of strategic alliances whose real impact on the potential value of an alliance has not yet been highlighted: the number of partners and the direct competition among them. Building on the resource-based view, as well as on the relational view of alliances, we argue that increases in the number of partners are positively valued by the stock market when the alliance is formed by competing firms that belong to different countries. Multiparty alliances are thus positively valued when they allow a quick internationalization by affording access to resources owned by competing firms from different countries. An empirical test of stock market reaction to alliances announced by European telecom firms between 1986 and 2001 has confirmed our hypotheses.     

Conform or rebel: when does keeping to the rules enhance firm performance?

This paper examines whether there are economic rewards to mimicking strategic actions of other firms. The strategic behaviour we study is the formation of technology collaborations with MNEs by Indian firms. We argue that conforming to the behaviour of other firms has differential performance effects across different classes of firms and suggest that the benefits of conformity accrue more to small than large firms. To test this, we measured each Indian firm's conformity to the average tendency of other similar firms to collaborate with an MNE and then regressed its performance on conformity. Results were consistent with our expectations that small firms gain more from conformity than do their larger counterparts. Copyright © 2009 ASAC. Published by John Wiley & Sons, Ltd.     

Multinational subsidiaries and green innovation

We address the questions of whether multinational (MNC) subsidiaries are more likely to introduce green innovation (GI) than domestic firms and how intra-MNC resources are likely contribute to this effort. Using the Community Innovation Survey for 14 European countries and adopting a knowledge-based view of the MNC, our results suggest that subsidiaries have an advantage of foreignness in GI as respect to domestic firms, especially when they have an innovation mandate (i.e., competence-creating subsidiaries). Our findings also support that intra-MNC and extra-MNC cooperation for innovation increases subsidiary probability to introduce GIs, the two being substitutes.     

Why Do Firms Enter into a New Niche Market? An Integrated View of Objective and Subjective Antecedents of Strategic Decisions

This study is based on behavioral theories and has the purpose of determining the predictors and contingencies of strategic decision making within the strategic tripod framework and CEO age effect. Furthermore, we focus on the effect of the interaction of these aspects on strategic decisions. Multiple theories and concepts are applied in this paper, such as the institution-, industry-, and resource-based view, upper echelons theory, socio-emotional wealth, empathy, and so on. Specifically, we focus on why Chinese real estate firms decide to enter the aged housing market. By conducting an empirical study using panel data from 134 listed Chinese real estate companies, we make the following conclusions: Institutional pressure and competitor numbers positively affect, whereas slack harms, the likelihood of entry. Ceteris paribus, the resource effect is strongest when the institutional effect is the most significant. When facing institutional pressure, a firm with a CEO older than 50 is significantly more likely to enter the aged housing market than firms with a CEO that is younger.Relieving institutional pressure and avoiding cutthroat competition are helpful in making strategic decisions but not for digesting slack resources. The CEO makes strategic decisions by replying to institutional pressure but likely not from engagements in resource or competitive affairs.     

Cooperative or competitive in alliance formation: Alliance patterns with respect to rivals

Premised on the assumption that strategic alliance is a type of competitive action toward rivals, this study explores how a firm uses alliances differently with respect to rivals. I distinguish between two types of alliances that directly involve rivals: alliance with a rival and with a rival's partner. The former and the latter reflect cooperative‐ and competitive‐orientations respectively. Further, I investigate what drives a focal firm to adopt a particular alliance rather than another. The findings indicate that the key consideration explaining different alliance patterns is the resource profiles of focal and rival firms. This study contributes to the literature on competitive dynamics and strategic alliance by suggesting a new approach to integrate interfirm competition and cooperation. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

Balancing social and political strategies in emerging markets: Evidence from India

This article explores the substitution and complementary effects between political and social strategies on firm performance in the context of an emerging market (EM). Using in‐depth, historical case‐study approach, the article investigates how companies integrate political and social resources in this market. Corporate performance includes traditional measures, such as accounting performance and nonfinancial measures like the ease of doing business. The study finds that social strategies are stronger enablers of firm long‐term performance than political strategies. The latter have a short‐term impact on performance, but their success over time is limited. The main drawback of reliance on political resources in EMs is the lack of political stability, fragmented polity, and weak political coalitions. We identify rather limited evidence of firms using these two strategies as complements. Thus, we suggest that firms should employ both these strategies in the EM.     

Institutional Ownership and Corporate Investment Performance

This paper examines the role of institutional investors in improving firm performance through the channel of corporate investment decisions. We find that the interaction effect between institutional ownership and capital expenditures is significantly related to firm performance. We examine this relationship for different types of institutional investors, and find that investment advisors are most effective monitors in improving firm performance through corporate investment. Moreover, we find that the monitoring role of institutional investors becomes more important when internal governance is weak. Institutional ownership and other forms of corporate governance mechanisms (including CEO incentive compensation and control, shareholder right provisions, and board of director monitoring) operate as substitutes, rather than complements, in improving capital expenditure decisions. Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.     

Monopolistic competition: CES redux?

We study the competitive and reallocation effects of trade opening in monopolistic competition. To this purpose, we generalize the Melitz (2003) setup with heterogeneous firms and fixed and variable trade costs beyond the CES to the case of additively separable utility functions. We find that extensive margin (Melitz-type selection) effects are robust to relaxing the CES assumption. Intensive margin effects (market share reallocations across inframarginal firms) and competitive (markup) effects are instead fragile. An important implication is that measured productivity gains from trade opening are no longer ensured with non-CES preferences. We discuss our results in the light of alternative setups featuring non-additive preferences, strategic interaction and consumers' preference for an ideal variety.     

Strategic entry or strategic exit? International presence by emerging economy enterprises

By proposing an integrated strategic choice framework, we theorize the distinctive dynamics of international expansion by emerging economy enterprises. Specifically, we explicate how these firms build international presence based on combined strategic entry (i.e., prompted by internal capabilities such as innovation and diversification) and strategic exit (i.e., pushed out by external handicaps at home such as institutional obstacles and market competition). Further, a firm’s cooperative ties with foreign multinationals in the former’s home country fortify the strategic entry intent, while ties with home government institutions weaken the strategic exit intent. We also demonstrate that building international presence helps bolster firm performance, highlighting the economic catch-up consequence of international expansion. Analyses of a two-year imbalanced panel data of 2136 firms statistically support our hypotheses.     

Market Structures with Multi-product Firms: Welfare Analysis and Policy Implications

In the real world firms operate in more than one market and consequently can exploit scope economies and/or demand complementarities. Introducing multi-product firms in the picture makes the standard assumption that more competition is always beneficial for social welfare less clear-cut. In this paper we show that a concentrated structure can be socially preferable in the presence of scope economies, whereas a fragmented structure has to be preferred when products are close substitutes. We also identify either analytically or numerically the socially optimal market structure when aggregate output (and then consumer surplus) or total welfare are used as ranking criteria. The analysis is useful for discussing which market structure should be favored by policy makers aimed at introducing competition in sectors which were previously monopolized by state-owned firms. To that respect, our findings point out that not only the level (number of firms) but also the form (type of firms) of competition matters.     

Human capital and wages in exporting firms

This paper studies the link between the education level of workers, export performance and wages. We argue that firms may escape intense competition in international markets by using high skilled workers to differentiate their products. This story is consistent with our empirical results. Using a very rich matched worker-firm longitudinal dataset, we find that there is a weak negative direct effect of exporting on wages, but an interaction term between export intensity and skill intensity has a positive impact on wages. That is, we find an export wage premium, but only in firms where the skill intensity is sufficiently high.     

Strategic Complements with First Mover Advantage

We show the existence of equilibrium and first mover advantage when two firms sequentially invest in quality improvement of their respective products. Although the actions (investment levels) of the firms are strategic complements, the second mover does not have an advantage. This is because, although firms are a priori identical, a change in rival investment can affect a firm differently, depending on whether the rival has a higher or lower level of investment. Thus, the marginal payoff with respect to rival action will differ for the first and second mover. We also show that the first mover may choose a higher level of investment than the second mover even though actions are strategic complements and the first mover's marginal payoff with respect to second mover action is negative.     

Multimarket contact and firm performance: The moderating effect of Confucian culture

This paper examines the effect of Confucian cultural value on the relationship between multimarket contact and two dimensions of firm performance, i.e., firms’ innovation and profitability. It is hypothesized that firms with a high level of multimarket contact are more likely to show mutual forbearance towards their competitors, which in turn influences their innovative behavior and financial performance. Taking into account the possible moderating effects of Confucian cultural value, we also hypothesize that the effect of multimarket contact is more pronounced among firms from the Confucian culture. In other words, it is argued that firms from the Confucian culture are more likely to innovate and obtain better financial performance. Empirical tests were conducted after the hypotheses, and the findings support the arguments on multimarket contacts and mutual forbearance hypotheses. Through facilitating tacit collusion, multimarket contact does seem to help create superior economic performance.